France Infrastructure Report Q3 2012

BMI View: The election of Francois Hollande as the new French president and his continued affirmation on growth-led policies over spending cuts has prompted BMI to revise up its 2012 forecast for the country’s construction industry value, from 0.8% year-on-year (y-o-y) growth to 1.2%. Between 2012 and the end of our 10-year forecast period in 2021, we expect the industry to grow by an annual average of 1.9%.

We expect the dominance of the transport sector to increase over the forecast period, reaching 83.2% of the total infrastructure industry value by 2016 and 88.1% in 2021, compared with the 79.7% forecast for 2012. This will, however, come at the cost of the energy and utilities sector, which we expect to register y-o-y growth of -0.3% between 2012 and 2021. The residential and non-residential construction sector will continue to bear the brunt of renewed government austerity measures and investors’ quest for stable non-traditional asset classes, leading to a steady deterioration in the segment’s share in construction industry value.

Key projects and developments in the sector include:

Three high-speed lines (LGV Sud Europe Atlantique, Contournement Nîmes-Montpellier (CNM) and Bretagne-Pays dela Loire), costing a total of EUR29bn, will be a key thrust behind value creation for the French infrastructure sector. The government’s commitment towards developing the transportation segment was further reinforced in April 2012, when the French Transport Ministry tentatively approved the construction of two high-speed railway lines – termed the Grand Projet Ferroviaire du Sud-Ouest – which involve the construction of more than 410km of new railway lines by 2020.

Large-scale projects planned in nuclear power and the investment in overhauling and expanding the country’s power grid will support growth in the energy and utilities infrastructure sector. Our longheld view that the renewables sector will generate interest at a global level is also playing out, with the Iberdrola-EOLE-RES consortium securing a contract from the French government to construct the Saint-Brieuc (Côtes-d'Armor) wind power plant offshore Brittany in April 2012. The consortium will install 100 units of M5000 turbines, which are to be produced by Areva.

Despite the overall cautious outlook, France scores 68.6 in BMI’s infrastructure risk/reward ratings, standing significantly higher than the developed markets’ average of 65.7 points. France’s hosting of the UEFA Euro 2016 Football Championship will create new contracts and jobs in the construction sector.

There is also significant potential for private investment to pick up where the government is leaving off.